Q&A On Full Capital Expensing: Taxpayers' Union Urges Government To Adopt Policy In Budget 2025
Following growing public discussion over the weekend and the Prime Minister's remarks on Newstalk ZB this morning, the Taxpayers' Union is once again calling on the Government to adopt full capital expensing as a centrepiece of Budget 2025.
James Ross, Spokesman for the Taxpayers' Union, says: "Full capital expensing is a proven, pro-growth reform that would immediately boost business investment and productivity. With the economy under strain, this is the kind of smart, targeted tax change New Zealand needs right now."
'Nicola Willis and Christopher Luxon want a 'growth budget'. Full capital expensing is how they make that happen.'
Full capital expensing allows businesses to deduct the full cost of new capital investments from their taxable income in the year of purchase, rather than depreciating it over time. This would unlock much-needed economic growth, improve business cash flow, and ultimately benefit workers through higher wages and more jobs.
A Q&A briefing outlining the policy's benefits is included below.
The full discussion paper is available at https://www.taxpayers.org.nz/go_for_growth_report
Q&A: FULL CAPITAL EXPENSING: A PRO-GROWTH POLICY FOR NEW ZEALAND
The New Zealand Taxpayers' Union has been advocating for the adoption of full capital expensing in Budget 2025 as a targeted measure to boost investment, productivity, and long-term economic growth. This Q&A outlines the key aspects of the policy and its potential benefits for the New Zealand economy.
What is full capital expensing?
Full capital expensing allows businesses to immediately deduct the full cost of new capital investments (such as machinery, equipment, and technology) from their taxable income in the year the investment is made. This contrasts with traditional depreciation methods, where deductions are spread over several years.
How does full expensing benefit the economy?
By improving cash flow and reducing the after-tax cost of investment, full expensing incentivises businesses to invest more in productive assets. This leads to higher productivity, increased wages, and stronger economic growth. International evidence suggests that full expensing can generate more investment than an equivalent reduction in corporate tax rates.
Why does full capital expensing benefit businesses?
Businesses currently face opportunity costs through the impact of tax depreciation schedules returning invested capital slowly over a number of years. This means that they have less capital available to make further productive investments. Inflation also erodes the value of future refunds, so delayed deductions are worth less in real terms.
Why is this policy relevant now?
New Zealand is experiencing economic challenges, including stagnant incomes, declining GDP per capita, and rising unemployment. The Taxpayers' Union argues that full capital expensing is a timely and effective measure to stimulate investment and drive economic recovery.
How does full expensing compare to corporate tax cuts?
While both policies aim to stimulate economic activity, full expensing is more targeted toward encouraging investment in productive assets. Research indicates that full expensing delivers more than twice the GDP growth compared to corporate tax cuts of equivalent revenue cost.
What are the fiscal implications of full expensing?
Full expensing primarily affects the timing of tax deductions, leading to a short-term reduction in tax revenue but not increasing the total deductions over time. As investment and economic activity increase, tax revenues are expected to recover, potentially offsetting the initial fiscal impact.
Has full expensing been implemented elsewhere?
Yes, countries like the United States and the United Kingdom have adopted full expensing policies, resulting in increased business investment and economic growth. These international examples demonstrate the policy's effectiveness in stimulating economic activity.
What is the Taxpayers' Union proposing?
The Taxpayers' Union recommends that the New Zealand Government implement full capital expensing in Budget 2025.
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